Australia’s current account deficit widens less than expectations in Q2

Australia’s current account deficit widened somewhat in the second quarter from the first quarter, but it came in smaller than market’s projection. The current account deficit came in at AUD 15.5 billion in the June quarter, widening slightly from AUD 14.9 billion in the previous quarter. Also, March’s deficit was revised significantly lower from the earlier reported AUD 20.8 billion.

The goods and services balance narrowed a bit to AUD 8 billion in the second quarter from AUD 8.6 billion in the first quarter, whereas primary income deficit widened to AUD 7.2 billion from AUD 5.8 billion.

Volumes of export continued to be resilient in the June quarter. It grew 1.4 percent in spite of a strong 3.8 percent rise in the prior quarter. The recent stimulus measures in China are possibly helping to stimulate demand, which is also seen in stronger commodity prices. The current boost in resource production capacity is continuing to underpin export volumes. Services exports grew 0.8 percent. It continues to gain from the weakness in the Australian dollar.

Meanwhile, import volumes grew 2.7 percent in the quarter, the strongest quarterly rise in five quarters. The improvement in imports gives an encouraging sign for domestic demand, especially within consumer spending. Imports of consumption goods rose strongly by 6.5 percent, implying that the recent subdued retail sales data is largely underestimating overall consumer spending or it might hint at firmer spending in coming months, said St George Economics in a research note. Service imports and capital goods imports both remained flat in the second quarter.

A recovery in Australia’s terms of trade, owing to robust commodity prices, assisted in stimulating incomes in traded sector. The terms of trade rose 2.4 percent in the second quarter, the first rise in two-and-a-half years.

Net exports are expected to negatively contribute 0.2 percentage points from the country’s second quarter GDP growth. But government spending and company profits came in quite stronger than anticipated.

“We have upgraded our GDP quarterly growth forecast to 0.5 percent and annual growth of 3.2 percent”, added St George Economics.